ANTI-CORRUPTION DUE DILIGENCE CAN HELP BUYERS, SELLERS AND THEIR ADVISERS TO FACILITATE ACQUISITIONS
Let’s do more anti-corruption due diligence’ is often an unwelcome proposal during pre-acquisition due diligence, if it is made at all. There is sometimes a reticence to stir up what are presumed will be unwelcome facts and often a significant burden on the seller to respond to a full array of anti-corruption questions from potential buyers. Yet thoughtful, risk-based anti-corruption due diligence can bring value to both sides of an acquisition and is best done earlier rather than later.
Pre-acquisition context
Pre-acquisition due diligence generally is not always as thorough as the buyer might wish. The target chooses what information to provide to the potential buyer and when to provide it. The buyer does not have subpoena or police power over the target. A buyer’s ability to conduct pre-acquisition due diligence might also be limited where there is competition from other potential buyers or there are timing constraints that affect the scope and depth of available pre-acquisition due diligence. Pre-acquisition due diligence in practice becomes an effort to ascertain as much as reasonably possible regarding value and risks before finalising the acquisition.
Enforcement context
US law does not retroactively create pre-acquisition jurisdiction over the seller’s historical conduct if the seller was not subject to US jurisdiction. Yet for a buyer that is subject to US Foreign Corrupt Practices Act (FCPA) jurisdiction, the acquisition will pull the target’s post-closing operations and revenue streams into the FCPA’s jurisdiction. For buyers not subject to FCPA jurisdiction that acquire a target business that is subject to FCPA jurisdiction, the value of the target business could be significantly impacted by pending or future US investigations, in addition to bringing unwelcome scrutiny of the buyer.
Oct-Dec 2022 Issue
Hughes Hubbard & Reed